Thoughts on Bitcoin
I'm not a big believer in Bitcoin. Before you throw cyber tomatoes at me, read on.
When Bitcoin started to get attention a few years back, I studied the history of money and read several books on the subject. Money is an interesting almost philosophical subject when you really dig it. Via my studies, I came to the conclusion that Bitcoin was inevitably going to zero because history shows that finite supply money doesn't work (economy hits a ceiling) and decentralized money, historically speaking, always ends up with someone screwing someone else over which causes the one getting screwed to run to the government who happily takes over.
I also figured the government(s) would never allow Bitcoin to get too big since it would threaten basically all existing economic theory (rates, banking, central banking, etc.) and those in power rarely hand it over if they can help it.
Further, I think that a day could come where people invent Bitcoin 2.0 and that will render Bitcoin 1.0 obsolete and fast (tulips anyone).
Fundamentally speaking, I continue to believe all of the above and no amount of hearing how Bitcoin is a cyber hornet will change my mind. However...
1. All "currencies" eventually go to zero but it can take centuries. More importantly...
2. My analysis focused on Bitcoin as a form of money not Bitcoin as a digital asset that allows people with excess money to express themselves and their discontent with the realities of a fiat money system.
In hindsight, I should have gone to the next step and said that, while Bitcoin probably won't ever survive as money, that doesn't mean it cannot be a highly speculative and tradable asset.
I recently tested my tactical models on historical Bitcoin prices and found they work about as expected (similar returns to buy and hold, reduced drawdowns, higher MAR ratios). I've been thinking that it probably makes sense to act accordingly since the models will participate on Bitcoin's potential move to infinity and will also protect against a move to zero.
If you read this far, I wonder what you think of a long-only tactical model applied to Bitcoin. Sure it will be sacrilege to the HODLers. But, to me, the idea makes sense. Of course, this post might signify the top.
George, like you, I have had a really hard time seeing Bitcoin as a way of paying for groceries at the local Safeway. But, just like things such as gold it moves up and down, traders set the current bid/ask, and it is liquid. I have traded the futures on Bitcoin successfully for years, both up and down. If it goes to $0, I will no doubt be short, enjoying the ride.